Sterling Resources Ltd. and PetroTal Ltd. Announce Closing of Reverse Take-Over and Completion of Peruvian Asset Acquisition

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CALGARY, Dec. 18, 2017 /CNW/ - Sterling Resources Ltd. ("Sterling" or the "Corporation") (TSXV: SLG) and PetroTal Ltd. ("PetroTal") are pleased to announce the completion of the previously announced reverse take-over by way of a statutory plan of arrangement (the "Arrangement") involving Sterling and PetroTal under the Business Corporations Act (Alberta).  Pursuant to the Arrangement, each common share of PetroTal ("PetroTal Share") was exchanged for 5.35 common shares of Sterling ("Sterling Shares") resulting in the issuance of an aggregate of 203,300,005 Sterling Shares.  As part of the Arrangement, Sterling and PetroTal were amalgamated and continued as one corporation under the name "Sterling Resources Ltd." ("New Sterling").

In addition, New Sterling has completed the acquisition of all the issued and outstanding common shares of Gran Tierra Energy International (Peru) Holdings B.V., an indirect wholly-owned subsidiary of Gran Tierra Energy Inc. ("GTE"), for 187,250,000 common shares of New Sterling ("New Sterling Shares"), at a deemed price of approximately US$0.1869 per New Sterling Share  (the "Acquisition"), and an option to retain a 20% working interest in Block 107 following the drilling of an initial exploration well ("GTE Option").  GTE holds approximately 45.8% of the outstanding common shares of New Sterling.

The TSX Venture Exchange (the "TSXV") granted conditional approval of the transactions on December 15, 2017, and final acceptance will be predicated upon the satisfactory achievement of certain conditions required by the TSXV, including completion of all outstanding filing requirements, delivery of customary legal opinions and corporate documentation and delivery of material agreements in respect of the transactions. Final acceptance of the Arrangement, Acquisition and Financing will occur upon the issuance of a Final Exchange Bulletin by the TSXV. The New Sterling Shares will only commence trading on the TSXV under the symbol "SLG" once all conditions have been satisfactorily met and the TSXV issues the Final Exchange Bulletin.

Pure Play Development and Exploration in Peru

• With over US$50 million cash⁽¹⁾ and no debt, New Sterling is well-positioned to execute on its pure play Peruvian development and exploration business plan
• New Sterling's business plan is primarily focused on unlocking value through the establishment of production and full field development of the Bretaña Oil Field
• In addition, New Sterling will continue to advance technical work on the Block 107 Osheki prospect with the intention of farming-down working interest to finance exploration drilling

New Sterling Highlights

• Team with extensive Peruvian experience supported by a board of established international oil & gas professionals
• 100% working interesting in Bretaña, one of the largest undeveloped discoveries in Peru with 330 MMboe of best estimate discovered oil in place and 39.8 (37.6 net) MMbbl of 2C contingent resources at 12% recovery factor⁽²⁾
• Substantial infrastructure in place at Bretaña, with the ability to deliver first production by Q4 2018 for USD$24 million in anticipated capital expenditure
• Robust netbacks of USD$24/bbl forecasted for Bretaña oil⁽³⁾
• Fully financed to commercial production at Bretaña targeting 5,000 bbl/d in first half of 2019
• Significant recovery factor upside at Bretaña as analogous fields in Peru have achieved recovery factors of approximately 20% - 40% versus 12% estimated for Bretaña⁽²⁾
• Exploration upside potential with seismically defined Block 107 Osheki prospect and 2.2 million net undeveloped acres including Block 95 (100% working interest), Block 107 (100% working interest subject to the GTE Option) and Block 133 (100% working interest)

Manuel Pablo Zúñiga-Pflücker, President and Chief Executive Officer of New Sterling, commented: "Our commitment to investors, the country of Peru and to our employees is to deploy capital in an efficient manner to unlock value for our shareholders, increase activity in Peru and grow our business for the future.  Beginning with the Bretaña oil field, we are confident in our ability to unlock the potential of this large established oil discovery through the application of proven oilfield practices.  The team we have assembled in Peru has a track record of successful development in-country and their experience working fields like Bretaña will be key to our success.  PetroTal's team joins an existing GTE team in Peru whose experience and knowledge will be instrumental in the go-forward plan and we look forward to working together."

"Over the next few months we will methodically pursue important milestones, including the conversion of contingent resources to reserves, the installation of production equipment at the Bretaña oil field, and the work-over of the existing Bretaña well to initiate first production within the next twelve months.  New Sterling will also advance the search for a joint venture partner to drill the Osheki prospect in Block 107."

The Financing

On December 12, 2017, PetroTal issued 34 million subscription receipts for total gross proceeds of US$34 million pursuant to a brokered private placement (the "Financing") co-led by Eight Capital and Pareto Securities AS and including PillarFour Securities Inc.  Each subscription receipt was exchanged for one PetroTal Share on December 18, 2017 without any further action required on the part of the holders of the subscription receipts and without payment of any additional consideration.

Following completion of the transactions, New Sterling has a total of 537,740,990 New Sterling Shares issued and outstanding, as well as 23,540,000 common share purchase warrants exercisable to purchase New Sterling Shares at an exercise price of approximately US$0.1869 per New Sterling Share.  At the next annual general meeting of the holders of New Sterling Shares, shareholders will be asked to approve a change of New Sterling's name to "PetroTal Corp."  A further review will be ongoing to determine if a share consolidation is appropriate.

An aggregate of 208,650,005 New Sterling Shares and 23,540,000 common share purchase warrants exercisable to purchase New Sterling Shares are subject to value escrow pursuant to TSXV escrow requirements.

Eight Capital acted as exclusive financial advisor to PetroTal with respect to the Arrangement and Acquisition and PillarFour Securities LLP acted as exclusive financial advisor to Sterling with respect to the Arrangement.

New Sterling Management Team and Board of Directors

With the closing of the transaction, the directors and executive officers of New Sterling are now:

Additional Information

Please refer to the filing statement of Sterling dated November 29, 2017 for additional information regarding New Sterling, the Arrangement, the Acquisition and the Financing, which is available under Sterling's profile on www.sedar.com.

Abbreviations

Presentation of Oil and Gas Information

For the purpose of calculating unit costs, natural gas volumes have been converted to a boe using six thousand cubic feet equal to one barrel unless otherwise stated.  A boe conversion ratio of 6:1 is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion conforms to NI 51-101. Boe may be misleading, particularly if used in isolation. Contingent resources are the quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology underdevelopment, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies are conditions that must be satisfied for a portion of contingent resources to be classified as reserves that are: (a) specific to the project being evaluated; and (b) expected to be resolved within a reasonable timeframe. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage.  

Estimates related to contingent resources:

Estimates of contingent resources included in this press release relating to the Bretaña oilfield are based upon the NSAI Contingent Resources Assessment.

The estimates of contingent resources provided in this press release are estimates only and there is no guarantee that the estimated contingent resources will be recovered. Actual contingent resources may be greater than or less than the estimates provided in this press release and the differences may be material. There is no assurance that the forecast price and cost assumptions applied by NSAI in evaluating the contingent resources will be attained and variances could be material. There is uncertainty that it will be commercially viable to produce any part of the contingent resources.

Estimates of contingent resources are by their nature more speculative than estimates of proved reserves and would require substantial capital spending over a significant number of years to implement recovery. Actual locations drilled and quantities that may be ultimately recovered from our properties will differ substantially. In addition, we have made no commitment to drill, and likely will not drill, all of the drilling locations that have been attributable to these quantities.

The contingent resources estimates that are referred to herein are risked as to chance of development (i.e. the level of risk associated with the chance of development was assessed by NSAI as part of the evaluations that were conducted). Risks that could impact the chance of development include, without limitation: geological uncertainty and uncertainty regarding individual well drainage areas; uncertainty regarding the consistency of productivity that may be achieved from lands with attributed resources; potential delays in development due to product prices; access to capital; availability of markets and/or take-away capacity; and uncertainty regarding potential flowrates from wells and the economics of those wells. Risk assessment is a highly subjective process dependent upon the experience and judgment of the evaluators and is subject to revision with further data acquisition or interpretation.

The following classification of contingent resources is used in the press release:

• Low Estimate (or 1C) means there is at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate
• Best Estimate (or 2C) means there is at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate
• High Estimate (or 3C) means there is at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate

In general, the significant factors that may change the contingent resources estimates include further delineation drilling, which could change the estimates either positively or negatively, future technology improvements, which would positively affect the estimates, and additional processing capacity that could affect the volumes recoverable or type of production. Additional facility design work, development plans, reservoir studies and delineation drilling is expected to be completed by New Sterling in accordance with its long-term resource development plan.

Forward-Looking Information

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements.   Statements about: the trading of New Sterling Shares on the TSXV, final regulatory approvals and the timing thereof; the change of New Sterling's name and a possible share consolidation; New Sterling's business strategy, objectives, strength and focus, including plans to install equipment, work over existing wells and identify a joint venture partner; and New Sterling's ability to create value for shareholders in the Bretaña oil field,including by converting contingent resources to reserves, among others, are forward-looking information. These statements should not be read as guarantees of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements.

The forward-looking statements and information are based on certain key expectations and assumptions made by New Sterling, including expectations and assumptions concerning: the ability of existing infrastructure to deliver production and the anticipated capital expenditures associated therewith, the need for incremental financing to commercial production, reservoir characteristics, recovery factor, exploration upside, prevailing commodity prices and the actual prices received for New Sterling's products, the availability and performance of drilling rigs, facilities, pipelines and other oilfield services, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the availability of capital and skilled personnel, and the accuracy of New Sterling's geological interpretation of its drilling and land opportunities.

Although New Sterling believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward looking statements and information because New Sterling can give no assurance that they will prove to be correct.  By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed.  These risks and uncertainties, include, but are not limited to, risks associated with the oil and gas industry in general (e.g. operational risks in development, exploration and production, and delays or changes in plans with respect to exploration or development projects or capital expenditures), commodity prices, the uncertainty of estimates and projections relating to production, cash generation, costs and expenses, health, safety, litigation and environmental risks, access to capitalas well as additional risks associated with operating in a developing country. Due to the nature of the oil and natural gas industry, drilling plans and operational activities may be delayed or modified to react to market conditions, results of past operations, regulatory approvals or availability of services causing results to be delayed.  Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof, and to not use such forward-looking information for anything other than its intended purpose.  New Sterling assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances unless required by law.

Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Sterling Resources Ltd.